We came across a bullish thesis on Crocs, Inc. (CROX) on Value Investing Subreddit page by cagr_capital. In this article, we will summarize the bulls’ thesis on CROX. Crocs, Inc. (CROX)’s share was trading at $105.22 as of Nov 5th. CROX’s trailing and forward P/E were 7.65 and 8.50, respectively, according to Yahoo Finance.
A customer browsing a retail store, finding the perfect footwear for their casual outfits.
Crocs (CROX) as a company has recently faced challenges following its Q3’24 earnings report, resulting in a 20% drop in share price and much of the decline stems from concerns around the underperformance of the HEYDUDE brand and the potential “Diworsification” of Crocs after acquiring HEYDUDE. Despite these challenges, Crocs remains an attractive value opportunity, especially as it now trades at a low multiple of 8.5x blended earnings, its lowest level since Q1 of this year.
For FY2024, Crocs is expected to exceed $4.0B in total revenue, though growth has slowed to 3.0% YoY, down from the earlier guidance of 3-5%. Earnings are projected to be flat for the year, largely due to slower-than-expected growth in the HEYDUDE brand. On the positive side, Crocs has reduced its debt-to-EBITDA ratio to under 1.5x, down from 1.9x in Q3 of 2023, after paying down debt following the acquisition. Free cash flow (FCF) margin continues to improve, reaching 23.1% for the trailing twelve months through Q3 2024, which highlights the company’s strong financial health and efficient capital management.
The core Crocs brand remains strong, with management expecting 8% YoY growth in revenue, surpassing initial guidance. This growth is largely driven by the increased demand for casual footwear, a trend accelerated by remote work and personalization. Crocs also maintains a competitive edge with its superior margins and return on invested capital (ROIC), both well above industry averages. While HEYDUDE has underperformed, particularly in North America, Crocs management continues to express confidence in its turnaround, seeing it as a potential future growth driver. Additionally, international growth remains robust, particularly in markets like China, where the company expects continued strength.
Risks for Crocs include the ongoing challenges with HEYDUDE, North America’s slow growth, and exposure to consumer spending pullbacks. The company’s significant investment in brand marketing for HEYDUDE, including partnerships like that with Sydney Sweeney, has yet to provide a positive return on investment. Nonetheless, Crocs’ current valuation offers a major buffer against further downside, with multiple expansion more likely over time than further compression. The company’s shareholder-friendly approach, including aggressive share buybacks, adds to the investment appeal.
Overall, despite near-term growth concerns, Crocs offers significant upside potential. With its low valuation, solid financial position, and the potential for earnings growth driven by strong international expansion and a successful HEYDUDE turnaround, Crocs is well-positioned for long-term growth. It is estimated that the stock could compound at 14.4% annually through 2029, doubling in value over the next five years, even with conservative growth assumptions.
Crocs, Inc. (CROX) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 40 hedge fund portfolios held CROX at the end of the second quarter which was 36 in the previous quarter. While we acknowledge the risk and potential of CROX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CROX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.